Which events count as credit events is set in the contract. A typical CDS on a company uses bankruptcy, failure to pay, and restructuring. A CDS on a country lists failure to pay, repudiation/moratorium, and restructuring. Whether an event has occurred is decided by the Credit Derivatives Determinations Committee (DC), whose procedures were set up in 2009.
The default terms in bond and loan contracts are generally not the same as the credit event terms of a CDS. A loan can therefore suffer a loss without a credit event being recognized, and the CDS hedge then does not work.